Series 79 practice questioneasyPrecedent Transaction Analysis
A typical reason for higher valuation multiples in precedent transaction analysis compared to trading comparables is:
- AAbsence of synergies in the deal
- BLack of market liquidity
- CInclusion of control premiums✓ Correct answer
- DUse of lower leverage by buyers
Explanation
Why C — Inclusion of control premiums
Precedent transactions often include a control premium over the unaffected trading price to entice shareholders to sell. Forgetting to adjust for or recognize this premium can lead to undervaluing a target in M&A situations.
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